Archive for the ‘Credit Counseling’ Category

What Happens If I Ignore the Mandatory Educational Requirements When Filing for Bankruptcy?

There are two mandatory courses you have to take if you are planning to file for bankruptcy. First, you must attend a credit counseling credit cardssession with an approved credit counselor within the six months prior to the date you file for bankruptcy. For example, if you filed bankruptcy in June 2011, you had to attend credit counseling on a date somewhere between January and June 2011. You also must attend a financial management session prior to the discharge of your bankruptcy case.

Don’t ignore either of these requirements. The U.S. government takes them seriously, and with good reason. Although most people realize that they don’t want to be in a position where they have to file for bankruptcy, there are some people who don’t learn better financial habits after bankruptcy or who see bankruptcy as an opportunity to run away from financial mistakes without suffering the consequences. This is why you can’t file a chapter 7 bankruptcy more than once in an eight year period. It is also why you have to take these mandatory classes; the idea is to learn better financial habits so that you won’t have to file for bankruptcy again. To ensure that you follow these requirements, the federal bankruptcy code requires the court to deny your bankruptcy case if you fail to turn in proof of attendance at both mandatory sessions.

If your case is dismissed, it will cause you bigger financial problems. You’ll lose the automatic stay against collections activities, so you might face foreclosure, repossession or lawsuits–the things you were trying to avoid dealing with by filing for bankruptcy in the first place. You can re-file the case, but you’ll have to pay the filing fee all over again, and this time you’ll only be entitled to a 30-day automatic stay, so you risk losing your property if the automatic stay is not being extended. If you hired an attorney to handle your case, the attorney will probably charge you for additional time so that he can re-file your case and resolve the problem. All in all, you’d probably spend at least $500 to resolve the problem and risk losing your property anyway. If you do what you’re supposed to do in the first place, you’ll have to spend about $35 to register for the classes and will have far less risk to your financial situation. So don’t rebel against this requirement. Make sure you take both required classes and submit your proof of attendance.

Why Filing for Bankruptcy is a Better Choice than Credit Counseling

Credit counseling most often involves consolidating outstanding debts as much as possible and then developing a negotiated repayment plan for a reduced payment over time to all of your creditors.  Credit counseling is often a first step taken by those who have significant debt due to varying unforeseen circumstances.   Each creditor has a different idea of what should be in the repayment plan and therefore will have different requirements.  The catch is that a repayment plan must be approved by all the creditors, which takes time.

What you may not know is that credit counselor staff is often working for the major credit card companies, in their best interests not yours.  This is because the credit consolidation agencies  get a cut of all the funds they recover that are owned to the creditor.  You probably would not want to buy a house from a realtor that was listing the property and was representing the seller.  So it follows that credit counselors are not working in your best interests.   This is a plain and simple conflict of interest on the part of the credit counseling agencies.

In addition, although you are working hard to try to preserve your credit rating by being responsible and developing a repayment plan, creditors will put a notice on your account that there is a repayment plan in place for your account.  In reality this actually further damages your credit rating; hindering your situation rather than helping it.

Developing a workable repayment plan may be difficult.  .   Each creditor may have a different idea of what should be in the repayment plan and they often will have different requirements.  The catch is that a repayment plan must be approved by all the creditors, which takes time.

A recent  Consumer Federation of America and the National Consumer Law Center  report has  shown that there is approximately a seventy-five percent rate of failure in completing  repayment plans.  This means that there is a fairly high failure rate.  Why start a process that may statistically not work?

Another common problem is that you may be working with a counseling agency for six months or longer and only then you find out that one of the creditors is unwilling to negotiate a repayment plan.  In this case there are a couple of options, you can retain the services of a bankruptcy attorney to negotiate a payment term or to file bankruptcy or find another credit counselor.

Then there is the not all that uncommon practice by credit counselors of paying their fees first.  The unwitting client pays their first consolidated bill only to find out they are even further in the hole because they first payment is going towards the agency fees and not their debt.

In summary, there are credit counselors out there that provide a valuable service.  However, each person has to choose what is right for their own particular situation at the given moment in time.


%d bloggers like this: